
Interest Rate Futures 185
8.11 Uses of Short-term Interest Rate Futures Contracts
Short-term interest rate futures contracts can be used for the following purposes:
1. To hedge borrowing costs
2. To hedge an investment yield
3. To create synthetic swaps
4. To speculate on interest rate movements or to enter into directional trades
5. To enter into spread trades
6. To enter into arbitrage transactions
7. To adjust the duration of the portfolio
8.11.1 Hedging Borrowing Costs
Short-term interest rate futures contracts are used when an organization is planning to borrow within a
very short time period. It can also be used to hedge the fu ...